Trade Businesses and State Licensing Compliance

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June 02, 2021

by a searcher from Duke University in Tulsa, OK, USA

The trade industries (electrical, HVAC, etc) are a common acquisition target for searchers and one of the major challenges is that the searcher is not licensed in that field. The common approach seems to be to have a key employee hold the state license and that is clearly a risk point since the business is dependent upon that employee's continuing to stay with the company and be healthy. 
What have people done before to manage this risk? I personally have thought about negotiating employment contracts with the license holder such that they get a large bonus after X number of years. What if the licensed employee has a personal or family health crisis that forces them to leave the company? How easy is it to have a backup employee with the license or to backfill the role?

If I pursue one of these businesses it may take a number of years before I personally can hold the license and want to know how to manage the risk when evaluating trade businesses for an acquisition. Thank you ahead of time for your input.

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Reply by a searcher
from Harvard University in Toronto, ON, Canada
If the license holder is an ordinary employee, carrots work. But if it's the seller, I would want to have both carrots and sticks in that agreement to keep Seller honest after their huge pay day.
commentor profile
Reply by a searcher
from University at Albany, State University of New York in Miami, FL, USA
I'm surprised no one had a comment about this. I was interested to see how other business buyers have handled this risk factor.
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